Newcastle manager Rafael Benitez
Benitez arrived at Newcastle in March following the sacking of former manager Steve McClaren.
He has been a big hit at St James’ Park since then, as he led them on a late and eventually unsuccessful bid to avoid relegation from the Premier League.
It was unknown whether he would be staying beyond thing summer, having had a break clause inserted into his contract when he joined the club.
Rafa Benitez has opted to stay at St James' Park
In a surprising turn though, he decided to stay, signing a new three-year deal on Wednesday that will see him managing them in the Championship next season.
The decision has been met with huge approval by the Magpies fan base, and Carragher says it is a fantastic coup for the club.
Newcastle manager Rafael Benitez with Siem De Jong
"It is fantastic for Newcastle,” he told talkSPORT.
"I think they are all still in shock that Rafa actually took the job on the back of Real Madrid but he is there and I am sure he will do a great job."
Newcastle manager Rafael Benitez before the match
It will now be interesting to see what work Benitez undertakes in the summer transfer window.
Many believe that the current playing squad will need a complete overhaul if it is to compete in the second division next season.
Much is likely to rest on who he can keep at the club, with several first team stars reportedly already planning moves away.